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SBA 7(a) Loans: A Financing Alternative for All Growing Businesses

Obtaining financing for a newer or rapidly growing business can be a challenge for owners who are starting out because they don’t always qualify for conventional loans. Additionally, sometimes more mature businesses could benefit from extended terms that just aren’t found in the conventional commercial banking market. One option for both types of entrepreneurs is the SBA 7(a) loan program.

What is the SBA 7(a)?

The 7(a) is the U.S. Small Business Administration’s primary program for helping start-up and existing small businesses. It offers flexible, long-term financing for a wide range of needs, including real estate construction, acquisition or refinance, equipment and working capital loans.

Because the loan contains the guaranty of the federal government, financial institutions are allowed to provide more favorable terms. The institution, not the business owner, interacts with the SBA to obtain this guaranty and close the loan with the business.

The 7(a) loan program offers longer terms, lower monthly payments and most importantly, no balloon payments as found in most conventional loans. Other benefits include:

  • Lower equity injection—typically 10 percent of the project amount
  • Retention of valuable working capital
  • Potential long-term fixed rates on real estate loans
  • No cost to renew loan every five years
  • Certainty of debt availability and cost

Contrary to what you may have heard, SBA 7(a) loans are not difficult for the experienced lender to obtain, and the underwriting, due diligence and closing procedures closely mirror those used for all conventional commercial loans.

Eligibility

You’re on the right track if you can demonstrate a need for funds and have a sound business purpose in mind. Your business must also meet the SBA’s size standards to be considered “small” for the 7(a) program. However, recent changes in these standards have made many businesses eligible that previously were not. You must operate for profit and have the appropriate personal experience and equity to invest. You’re also required to do business in the United States or its possessions.

How funds can be used

SBA 7(a) loans can be as large as $5,000,000 and used for a wide variety of needs, including:

  • Acquisition, construction or renovation and long-term financing of owner-occupied commercial real estate
  • Machinery and equipment
  • Furniture and fixtures
  • Permanent working capital
  • Business acquisitions
  • Business expansions
  • Franchise expansions
  • Refinancing existing commercial loans containing less favorable terms

Your financial advisor can help determine if an SBA 7(a) loan is the right loan for you and walk you through the application process.

Jerry Woods can be reached at 615-743-8351 or by email at jerry.woods@pnfp.com.

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